Good morning! I'm writing this from the departure lounge at Gatwick, off for a 6-day trip to Las Vegas! So due to the time difference, reports for Wed-Fri this week (and possibly Mon next week) will be published in the evenings UK time, sorry about that.
Topps Tiles (LON:TPT)
Share price: 107p
No. shares: 193.6m
Market Cap: £207.2m
Results for the year ended 27 Sep 2014 have been published this morning. The company has been putting out positive trading statements for a while, so it's no surprise that the headline figures look good - in particular, I am very impressed with +8.1% LFL sales growth for the year, and an impressive gross margin of 60.9%.
If you add 8.1% to last year's sales of £177.8m, that comes out at £192.2m, which is only £3.0m short of reported sales of £195.2m, which implies that nearly all the growth in turnover is from existing stores, rather than new store openings.
I make that an additional £8.7m in gross profit from existing stores, plus about £1.2m additional gross profit from the 70 bps improvement in gross margin. I would have expected most of that to flow through to the bottom line. However, adjusted operating profit has only risen by £4.1m to £17.1m, which is less than I anticipated.
Adjusted EPS is only up 21.9% to 6.63p. So where has the operational gearing gone? These figures suggest to me that overheads must have gone up a lot too.
Looking at the P&L, I think I've found the reason why - the employee profit sharing line has gone up considerably, from £6.3m last year to £9.8m this year. That is laudable - I'm all for employees getting a meaningful profit share in the good years, but it blunts the investing case, because a big chunk of the operational gearing is given away to staff. Therefore shareholders need to take that into account, and weigh up the short term cost with the long term benefit of increased employee motivation, lower staff turnover, reduced training costs, etc.
The share price is 107p, so that gives a PER of 16.1, which looks a fairly punchy rating, especially when you factor in that the company has net debt of £30.5m, although personally I always offset freehold property against net debt, and in this case the company has £16.0m of freehold property.
Outlook - looks strong. The first 8 weeks of…
